Portfolio Analysis of INDIA BULLS.

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INTRODUCTION TO

REPORT

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1.1 INTRODUCTION TO REPORT

In most industrialized countries, a substantial part of financial wealth is not managed

directly by savers, but through a financial intermediary, which implies the existence of an

agency contract between the investor (the principal) and a broker or portfolio manager(the agent). Therefore, delegated brokerage management is arguably one of the most

important agency relationships intervening in the economy, with a possible impact on

financial market and economic developments at a macro level.

In most of the metros, people like to put their money in stock options instead of dumping

it in the bank-lockers. Now, this trend pick pace in small but fast developing cities of

India. My research is based on the investors in stock market in Pune and its nearby areas.

As the per-capita-income of the city is on the higher side, so it is quite obvious that they

want to invest their money in profitable ventures. On the other hand, a number of

brokerage houses make sure the hassle free investment in stocks. Asset management

firms allow investors to estimate both the expected risks and returns, as measured

statistically.

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1.2 COMPANY PROFILE

Type Public company

Traded as NSE: INDIABULLS

BSE: 532544

Industry Financial Services, Real Estate, Power

Founded May, 2000

Headquarters Gurgaon, India

Key people Sameer Gehlaut Chairman & CEO, Rajiv Rattan, ViceChairman, Saurabh Mittal, Vice Chairman

Products Securities, Consumer Finance, Mortgages, Real Estate

Employees 20000 (2007)

Website www.Indiabulls.com

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1.3 FORMATION OF THE COMPANY:

According to prevention of Money Laundering Act, 2002 and Rules framed there under,

Indiabulls Securities Ltd has developed and implemented the antimoney laundering

program designated to achieve and monitor the compliences with the requirement. Forthe purpose of compliance with requirements and provisions of the Act, Indiabulls is

maintaining a record of such transactions the nature and value of which has been

prescribed in the Rules under the Act. Such transaction include:

All cash transactions of the value more than Rs. 10 lacs or its equivalent in foreign

currency.

All series of cash transaction integrally connected to each other which have been valued

below Rs . 10 lacs or its equivalent in foreign currency where such series of transaction

take place within one calender month.

All suspicious transactions whether or not made in cash and including inter-alia, credit or

debits into from any non monetary account such as security account maintained by the

registered intermediary.

it may, however, be cleared that for the purpose of suspicious transaction reporting, apart

from 'transaction connected', transaction remotely connected or related are alsoconsidered.

Indiabulls existing policies and procedures for its various business functions from the

basis for its overall money laundering prevention programm. This assures that anti-

money laundering compliance reach all aspects of our firm's business.

Moreover anti-money laundering procedures set out by Indiabulls Securities Ltd. are

reviewed regularly and updated as necessary based on any legal/regulatory

orbusiness/operational changes, such as addition or amendments to existing anti-money

laundering rules and regulations or business expantion.

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ABOUT FOUNDER:

The fast paced growth, diversification and consolidation of the Group has been possible

due to the vision and leadership of the co- founders of Indiabulls.

Sameer Gehlaut

He is the Chairman, CEO and Whole Time Director of Indiabulls. Sameer

is an engineer from IIT, Delhi (1995) and has worked internationally with Halli burton in

its international services business in 1995. He has utilized his experience with the

international best practices and professional work culture at Halliburton to lead Indiabulls

successfully.

Rajiv RattanHe is the President, CFO and Whole Time Director ofIndiabulls. Rajiv is an

engineer from IIT, Delhi (1994) and has rich experience in the oil industry, having

worked extensively across the globe in highly responsible assignments with Schlumb

erger. Rajiv has managed remote exploration projects providing evaluation services for

different clients in India as well as abroad.

Saurabh Mittal

He is a Director at Indiabulls. Declared the best graduating student in IIT,

Delhi in (1995), Saurabh was also one of the engineers selected by Schlumber to work

for its international services business in 1995 and gained experience of working in

various global locations. He graduated as a Baker Scholar with an MBA from the

Harvard Business School. He has also developed in-depth understanding of international

financial markets.

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1.4 VISION & MISSION :

To be the largest & most profitable Financial Services Organisation in Indian Retail

Market.

Become one stop shop for all banking financial products & services for all retail

customer.

MISSION

Rapidaly increase the number of client relationship to be a clear market leader to provide

our clients a very broad array of products and services.

MILESTONES IN THE HISTORY

Indiabulls Financial Services Ltd. was incorporated on January 10,2000 as M/s Orbis

Infotech Private Limited at New Delhi under the Companies act, 1956.

The company was promoted by three engineers from IIT Delhi, and has attracted more

than Rs. 700 million as investments from various banks.

The name of company was changed to M/s Indiabulls Financial Services Private Ltd on

March 16,2001. Indiabulls came up with it own public issue & became public Ltd company on February

27, 2004. and the name of company changed to M/s. Indiabulls Financial Services

Limited.

The Indiabulls has developed significant relationship with large commercial banks such

as Citi banks, HDFC Bank, Union Bank, ICICI Bank, ABN Bank, Standard Charterd

Bank and IL& FS.

The company headquarters are co-located in Mumbai and Delhi.

The marketing and sales efforts are headquartered out of Mumbai, with a regional

headquarter in Delhi.

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There are headquartered out of Delhi/NCR allowing the company to scale these processes

efficiently for the nationwide network

FLAGSHIP IN OTHER SERVICES

Indiabulls

InsurancePersonal Loan

Real Estate

Resources Ltd.

Home Loan

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1.5 INDUSTRY PROFILE

Broking houses in India

India is a country having a big list of Broking Houses. The Equity Broking Industry in

India has several unique features like it is more than a century old, dynamic, forward

looking, and good service providers, well conversant, highly innovative and even

adaptable. The regulations and reforms been laid down in the Equity Market has

resulted in rapid growth and development. Basically, the growth in the equity market

is largely due to the effective intermediaries.

The Broking Houses not only act as an intermediate link for the Equity Market butalso for the Commodity Market, Foreign Currency Exchange Market, and many

more. The Broking Houses has also made an impact on the Foreign Investors to

invest in India to certain extent.

In the last decade, the Indian brokerage industry has undergone a dramatic

transformation. From being made of close groups, the broking industry today is one

of the most transparent and compliance oriented businesses. Long settlement cycles

and large scale bad deliveries are a thing of the past with the advent of T+2

settlement cycle and dematerialization. Large and fixed commissions have been

replaced by wafer thin margins, with competition driving down the brokerage fee, in

some cases, to a few basis points.

There have also been major changes in the way business is conducted. Technology

has emerged as the key driver of business and investment advice has become

research based. At the same time, adherence to regulation and compliance has

vastly increased. The scope of services have enhanced from being equity products

to a wide range of financial services. Investor protection has assumed significance,.

At present there are 23 recognized stock exchanges with about 6000 stockbrokers.

Organization structure of stock exchange varies.14 stock exchanges are organized as

public limited companies, 6 as companies limited by guarantee and 3 are non-profit

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voluntary organization. Of the total of 23, only 9 stock exchanges have been permanent

recognition. Others have to seek recognition on annual basis.

These exchange do not work of its own, rather, these are run by some persons and with

the help of some persons and institution. All these are down as functionaries on stock

exchange. These are

Stockbrokers

sub-broker

market makers

Portfolio consultants etc.

Stockbrokers:

Stock brokers are the members of stock exchanges. These are the persons who buy, sell

or deal in securities. A certificate of registration from SEBI is mandatory to act as a

broker. SEBI can impose certain conditions while granting the certificate of registrations.

It is obligatory for the person to abide by the rules, regulations and the buy-law. Stock

brokers are commission broker, floor broker, arbitrageur etc.

Detail of registered brokers

Total no. of registered brokers as on

31.03.2008

Total no. of sub-brokers as on

31.03.2008

9000 24,000

Sub broker:

A sub-broker acts as agent of stock broker. He is not a member of a stock exchange.

He assists the investors in buying, selling or dealing in securities through stockbroker.

The broker and sub-broker should enter into an agreement in which obligations of both

should be specified. Sub-broker must be registered SEBI for a dealing in securities. For

getting registered with SEBI, he must fulfill certain rules and regulation.

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Market Makers

Market maker is a designated specialist in the specified securities. They make both

bid and offer at the same time. A market maker has to abide by bye-laws, rules

regulations of the concerned stock exchange. He is exempt from the margin requirements.

As per the listing requirements, a company where the paid-up capital is Rs. 3 crore but

not more than Rs. 5 crore and having a commercial operation for less than 2 years should

appoint a market maker at the time of issue of securities.

Portfolio consultants

A combination of securities such as stocks, bonds and money market instruments

is collectively called as portfolio. Whereas the portfolio consultants are the persons, firms

or companies who advise, direct or undertake the management or administration of

securities or funds on behalf of their clients.

Types of Trade:

There are different types of trade depending on the type of shares and investors

interest and his mentality for investing the money in the Stock Exchange.

The trade depends upon

the type of shares listed viz. Cash or Futures & Options ( F&O), time period of investing whether long-term (may be months or years) or

short-term (for a day or a month) .

Intra-Day Trade:

This kind of trade is done in the cash market. Trading (here buying and selling of

shares) is done on the same day. Trade is carried on the daily basis. Whatever the stocks

are purchased at the beginning of the market is squared up till the market is closed the

same day. This kind of trade is suitable for daily traders who monitor stock market daily

and are interested in short p rofits and dont want to be logging for long profits. The

investors are short-term investors.

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For E.g.: If Mr. A purchases Tata Steel 50 shares @Rs.450 per share when the market

opens or else in the day time and wishes not to keep the delivery of the stock he can sale

the stock purchased the same day before the market closes( This is known as squaring of

position. The client instructs the broker/sub-broker to sell the square-up his position or

the broker takes the decision after consulting the client).

Future & Options (F&O) trade:

A futures contract is an agreement between two parties to buy or sell an asset at a

certain time in the future at a certain price. There are two types of futures contracts, those

that provide for physical delivery of a particular commodity and those that call for an

eventual cash settlement. The commodity itself is specifically defined, as is the month

when delivery or settlement is to occur. A July futures contract, for example, providesfordelivery or settlement in July. It should be noted that even in the case of delivery-type

futures contracts, very few actually resulting deliveries. The vast majority of both

speculators and hedgers choose to realize their gains or losses by buying or selling an

offsetting futures contract price to the delivery date. While there are some tools used by

futures investors to protect themselves from price fluctuations and from incurring heavy

losses. Some of them are as under:

Hedger:

By buying or selling in the futures market now, individuals and firms are able to

establish a known price level for something they intend to buy or sell later in the cash

market. Buyers are thus able to protect themselves against- that is, hedge against- higher

prices and sellers are able to hedge against lower prices. Hedgers can also use futures to

lock in an acceptable margin between their purchase cost and their selling price

Spreads:

While most speculative futures transactions involve a simple purchase of futures

contracts to profit from an expected price increase- or an equally simple sale to profit

from an expected price decrease- numerous other possible strategies exist. Spreads are

just one of the many examples. A spread involves buying one futures contract in one

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month and selling another futures contract in a different month. The purpose is to profit

from an expected change in the relationship between the purchase price of one and the

selling price of the other.

Stop Orders:

A stop order is an order, placed with the broker, to buy or sell a particular futures

contract at the market price if and when the price reaches a specified level. Stop orders

are often used by futures traders in an effort to limit the amount they might lose if the

futures price moves against their position.

An option is a contract in which the writer of the option grants the buyer of the

option the right, but not the obligation, to purchase from or sell to the writer an asset at a

specifies price within a specified period of time (or at a specified date). The writer, also

referred to as the seller, grants this right to the buyer in exchange for a certain sum of

money, which is called the option price or option premium. The price at which asset may

be bought or sold is called the exercise price or strike price.

The date after which an option is void is called the expiration date. As with a

futures contract, the asset that the buyer has the right to buy and the seller is obligated to

sell is referred to as the underlying. When an option grants the buyer the rig ht to

purchase the underlying from the writer (seller), it is referred to as a call option or call.

When the option buyer has the right to sell the underlying to the writer, the option is

called a put option or put.

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Index Trading:

In this type of trade the investors are allowed to buy and sell indices, in terms of

securities. Currently this facility is only for NIFTY securities. The buying and selling of

Index is simulated by putting orders in securities in proportion that comprises the chosenindex. The user can specify buy/sell and also provide Pro/Cli/Whs order attributes. For

orders the Cli/Whs account number is compulsory and has to be mentioned in the edit

box provided along with it.

The Host End divides the input amount mentioned in the Amount Edit Box

among the securities of Index according to their weightage , and generates orders priced

as market orders. Stock index futures contracts, for example are settled in cash on the

basis of the index number at the close of the final day of trading. Delivery of the actualshares of stock that comprise the index would obviously be impractical.

1.6 STATEMENT OF THE PROBLEM

The problem is to know the investors investing decisions towards their future

investments, their needs, wants in the best possible way so as to get the optimal return. So

the research will be carried out for the purpose of building a balanced portfolio.

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1.7 OBJECTIVES OF THE STUDY

The main objective of the project is to find out the needs of the current

and future investors.

For this analysis, customer perception and awareness level will be measured in important

areas such as:

1. To understand in depth about different investment avenues available in India.

2. The type of financial instruments, they would prefer to invest.

3. The duration for which they would prefer to keep their money invested.

4. What are the factors that they consider before investing5. To give a recommendations to the investors that where they should invest.

6. To identify the objective of savings of an investor.

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1.8 RESEARCH METHODOLOGY

WHAT IS MARKETING RESEARCH?

The natural starting point is to define our subject, and so we quote the traditional

definition of the American Marketing Association (A.M.A). Marketing Research is

The systematic, gathering, recording and analyzing of the data about problems

relating to the marketing of goods and services.

The systematic conduct of research requires particularly these two qualities

Orderliness, in which the measurement are accurate and cross section is fair, and Impartiality in analysis and interpretation.

The definition also indicates the scope of marketing research. We will modify that but

adding

Planning

Interpreting

The definition needs these stages of planning and interpreting, because__

Unless there has been planning in advance, a study would be unsystematic, and The research has to be completed by interpreting the data for it to have meaning

and value to its user.

A research model that fulfills that definition will be presented shortly.

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WHY MARKETING RESEARCH ?

It is usually said that if marketing would be a train, then market research would be

the locomotive. In other words, market research should ideally be the starting point of

any marketing exercise. Conducting any marketing exercise - be it related to pricing, promotion or distribution of a product or service, without researching the potential

market is as sensible as setting out to sell sand in the Sahara Desert.

MARKETING RESEARCH PROCESS: AN OVERVIEW

The marketing research process includes the systematic identification, collection,

analysis and distribution of information for the purpose of knowledge development

and decision making. Whether you are creating a new marketing research program or

perhaps revising an existing marketing research program, what are the steps you

should take?

While there are dozens of little steps along the way, each of those steps fits into one

of the 6 major steps of the marketing research process.

Problem Identification

Research Design

Data Collection

Data Analysis & Interpretation

Research Report & Presentation

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RESEARCH

Research comprises of defining & redefining problems, formulating hypothesis or

suggested solutions, collecting, organizing & evaluating data, making deductions &

reaching conclusions. In research design we decide about:

Type of data From whom to get data How to analyze data How to make report

DATA TYPE

Data collected was both Primary and Secondary in nature.

DATA COLLECTION

The information is collected through the PRIMARY SOURCES like:

Interviewing the employees of the department. Getting information from the clients through telephone & questionnaire. Discussion with the head of the department .

Data was collected from following SECONDARY SOURCES like

The information was gathered with the help of internet, newspapers and company

journals.

The collected information was edited & tabulated for the purpose of analysis

ANALYSIS OF DATA - The complete analysis is done through Pie charts and columngraphs in different questions.

SAMPLING SIZE - The sampling size to study the customer response is 100. The

numbers of respondent are 100 in sample size for the study.

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TOOLS USED FOR PROJECT

While making the project file various tools were used. These tools helped in doing the

work. These are:-

Microsoft Excel Microsoft Word Various analysis tools like Bar Graphs, Pie Graphs, tables

1.9 LIMITATIONS OF THE STUDY

1. The data collected is basically confined to secondary sources, with little amount

of primary data associated with the project.

2. There is a constraint with regard to time allocated for the research study.

3. The availability of information in the form of annual reports & price fluctuations

of the companies is a big constraint to the study.

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CONCEPTUAL

BACKGROUND

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2.1 LITERATURE REVIEW

From the investor point of view this portfolio followed by him is very important since

through this way one can manage the risk of investing in securities and thereby managing

to get good returns from the investment in diversified securities instead of putting all the

money into one basket. Now a days investors are very cautious in choosing the right

portfolio of securities to avoid the risks from the market forces and economic forces. So

this topic is chosen because in portfolio management one has to follow certain steps in

choosing the right portfolio in order to get good and effective returns by managing all the

risks.

This topic covers how a particular portfolio has to be chosen concerning all the securities

individual return and there by arriving at the overall portfolio return. So a Balanced

Portfolio was constructed which includes exposure both in equities and debt. So in

volatile periods also this portfolio will outperform the benchmark. This also covers the

various techniques of evaluation of the portfolio with regard to all the uncertainties and

gives an edge to select the right one. The purpose of choosing this topic is to know how

the portfolio management has to be done in arriving at the effective one and at the same

time make aware the investor to choose the securities which they want to put in their

portfolio. This also gives an edge in arriving at the right portfolio in consideration to

different securities rather than one single security. The project is undertaken for the study

of my subject thoroughly while understanding the different case studies for the better

understanding of the investor and myself.

The Balanced Portfolio which was constructed was revised six times i.e. every week and

then a model portfolio was made. Weekly revision was done as monthly was not possible

so I followed weekly revision of the portfolio.

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2.2 Objectives of Portfolio Management

The basic objective of Portfolio Management is to maximize yield and minimize risk.

The other ancillary objectives are as per needs of investors, namely:

Regular income or stable return Appreciation of capital Marketability and liquidity Safety of investment Minimizing of tax liability.

Five Popular Portfolio Types

Stock investors constantly hear the wisdom of diversification. The concept is to simply

not put all of your eggs in one basket, which in turn helps mitigate risk, and generally

leads to better performance or return on investment. Diversifying your hard-earned

dollars does make sense, but there are different ways of diversifying, and there are

different portfolio types. We look at the following portfolio types and suggest how to get

started building them: aggressive, defensive, income, speculative and hybrid. It is

important to understand that building a portfolio will require research and some effort.

Having said that, let's have a peek across our five portfolios to gain a betterunderstanding of each and get you started.

1. The Aggressive Portfolio

An aggressive portfolio or basket of stocks includes those stocks with high risk/high

reward proposition. Stocks in the category typically have a high beta, or sensitivity to the

overall market. Higher beta stocks experience larger fluctuations relative to the overall

market on a consistent basis. If your individual stock has a beta of 2.0, it will typically

move twice as much in either direction to the overall market - hence, the high-risk, high-

reward description.

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Most aggressive stocks (and therefore companies) are in the early stages of growth, and

have a unique value proposition. Building an aggressive portfolio requires an investor

who is willing to seek out such companies, because most of these names, with a few

exceptions, are not going to be common household companies. Look online for

companies with earnings growth that is rapidly accelerating, and have not been

discovered by Wall Street. The most common sectors to scrutinize would be technology,

but many other firms in various sectors that are pursuing an aggressive growth strategy

can be considered. As you might have gathered, risk management becomes very

important when building and maintaining an aggressive portfolio. Keeping losses to a

minimum and taking profit are keys to success in this type of portfolio.

2. The Defensive Portfolio

Defensive stocks do not usually carry a high beta, and usually are fairly isolated from

broad market movements. Cyclical stocks, on the other hand, are those that are most

sensitive to the underlying economic "business cycle." For example, during recessionary

times, companies that make the "basics" tend to do better than those that are focused on

fads or luxuries. Despite how bad the economy is, companies that make products

essential to everyday life will survive. Think of the essentials in your everyday life, and

then find the companies that make these consumer staple products.

The opportunity of buying cyclical stocks is that they offer an extra level of protection

against detrimental events. Just listen to the business stations and you will hear portfolios

managers talking about "drugs," "defense" and "tobacco." These really are just baskets of

stocks that these managers are recommending based upon where the business cycle is and

where they think it is going. However, the products and services of these companies are

in constant demand. A defensive portfolio is prudent for most investors. A lot of these

companies offer a dividend as well which helps minimize downside capital losses.

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3. The Income Portfolio

An income portfolio focuses on making money through dividends or other types of

distributions to stakeholders. These companies are somewhat like the safe defensive

stocks but should offer higher yields. An income portfolio should generate positive cashflow. Real estate investment trusts (REITs) and master limited partnerships (MLP) are

excellent sources of income producing investments. These companies return a great

majority of their profits back to shareholders in exchange for favourable tax status. REITs

are an easy way to invest in real estate without the hassles of owning real property. Keep

in mind, however, that these stocks are also subject to the economic climate. REITs are

groups of stocks that take a beating during an economic downturn, as building and

buying activity dries up. An income portfolio is a nice complement to most people's pay

check or other retirement income. Investors should be on the lookout for stocks that have

fallen out of favour and have still maintained a high dividend policy. These are the

companies that can not only supplement income but also provide capital gains. Utilities

and other slow growth industries are an ideal place to start your search.

4. The Speculative Portfolio

A speculative portfolio is the closest to a pure gamble. A speculative portfolio presents

more risk than any others discussed here. Finance gurus suggest that a maximum of 10%

of one's investable assets be used to fund a speculative portfolio. Speculative "plays"

could be initial public offerings (IPOs) or stocks that are rumoured to be takeover targets.

Technology or health care firms that are in the process of researching a breakthrough

product, or a junior oil company which is about to release its initial production results,

would also fall into this category.Another classic speculative play is to make an

investment decision based upon a rumour that the company is subject to a takeover. One

could argue that the widespread popularity of leveraged ETFs in today's marketsrepresent speculation. Again, these types of investments are alluring: picking the right

one could lead to huge profits in a short amount of time. Speculation may be the one

portfolio that, if done correctly, requires the most homework. Speculative stocks are

typically trades, and not your classic "buy and hold" investment.

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5. The Hybrid Portfolio

Building a hybrid type of portfolio means venturing into other investments, such as

bonds, commodities, real estate and even art. Basically, there is a lot of flexibility in the

hybrid portfolio approach. Traditionally, this type of portfolio would contain blue chipstocks and some high grade government or corporate bonds. REITs and MLPs may also

be an investable theme for the balanced portfolio. A common fixed income investment

strategy approach advocates buying bonds with various maturity dates, and is essentially

a diversification approach within the bond asset class itself. Basically, a hybrid portfolio

would include a mix of stocks and bonds in a relatively fixed allocation proportions. This

type of approach offers diversification benefits across multiple asset classes as equities

and fixed income securities tend to have a negative correlation with one another.

The Bottom Line

At the end of the day, investors should consider all of these portfolios and decide on the

right allocation across all five. Here, we have laid the foundation by defining five of the

more common types of portfolios. Building an investment portfolio does require more

effort than a passive, index investing approach. By going it alone, you will be required to

monitor your portfolio(s) and rebalance more frequently, thus racking up commission

fees. Too much or too little exposure to any portfolio type introduces additional risks.

Despite the extra required effort, defining and building a portfolio will increase your

investing confidence, and give you control over your finances.

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2.3 Schematic diagram of stages in portfolio management

Specification andquantification ofinvestor objectives,constraints, and risktolerance

Portfolio policies andstrategies

Capital market

expectations

Relevant economic,social, politicalsector and securityconsiderations

Monitoring investorrelated input factors

Portfolio construction andrevision asset allocation,portfolio optimization,security selection,implementation andexecution

Monitoring economicand market input factors

Attainment ofinvestorobjectives

Performancemeasurement

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2.4 NEED FOR PORTFOLIO MANAGEMENT

The Portfolio Management deals with the process of selection securities from the number

of opportunities available with different expected returns and carrying different levels of

risk and the selection of securities is made with a view to provide the investors themaximum yield for a given level of risk or ensure minimum risk for a level of return.

Portfolio Construction refers to the allocation of surplus funds in hand among a variety of

financial assets open for investment. Portfolio theory concerns itself with the principles

governing such allocation. The modern view of investment is oriented towards the

assembly of proper combinations held together will give beneficial result if they are

grouped in a manner to secure higher return after taking into consideration the risk

element

Portfolio Management Process

Security analysis Portfolio analysis Selection of securities

Portfolio revision Performance evaluation

Analysis of securities

Security analysis in both traditional sense and modern sense involves the projection of

future dividend or ensuring the intrinsic value of a security based on the forecast of

earnings or dividend. Security analysis in traditional sense is essentially on analysis of thefundamental value of shares and its forecast for the future through the calculation of its

intrinsic worth of the share.

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Modern security analysis relies on the Fundamental Analysis of the security, leading to

its intrinsic worth and also rise-return analysis depending on the variability of the returns,

covariance, safety of funds and the projection of the future returns. If the security analysis

based on fundamental factors of the company, then the forecast of the share price has to

take into account inevitably the trends and the scenario in the economy, in the industry to

which the company belongs and finally the strengths and weaknesses of the company

itself. Also Technical Analysis is also followed to determine breakout points and support

and resistance of the stock.

Approaches to Security Analysis

Fundamental analysis Technical analysis Efficient market hypothesis

Fundamental Analysis

The intrinsic value of an equity share depends on a multitude of factors. The earnings of

the company, the growth rate and the risk exposure of the company have a direct bearing

on the price of the share. These factors intern rely on the host of other factors like

economic environment in which they function, the industry they belong to, and finally

companys own performance. Mostly top -down approach is followed which is shown

below.

Economic analysis Industry analysis

Company analysis

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Company analysis

Investors should know the company results properly before making the investment. The

selection of investment is depends on optimum results of the following factors.

1) Marketing forces:

Manufacturing companies profit depends on marketing activities. If the marketing

activities are favourable than it can be concluded that the company may have more

profit in future years Depending upon the previous year results fluctuations in sales or

growth in sales can be identified. If the sales are increasing in trend investor may be

satisfied.

2. Accounting Profiles:

Different accounting policies are used by organization for the valuation of inventories

and fixed assets.

3. Profitability situation:

It is a major factor for the investor. Profitability of the company must be better compare

with the industry. The efficiency of the profitability position or operating activities can be

identified by studying the following factors

A) Gross profit margin ratio:

It should be more than 30%. But, other operating expenses should be less compare to

operating incomes.

Sales cost of goods sold

GPMR =

Sales

B) Operating & net profit ratio:

Operating profit is the real income of the business it is calculated before non

operating expenses and incomes. It should be nearly 20%. The net profit ratio must be

more than 10%.

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Profit after tax

NPR =

Sales

4. Returns on capital employed:

It measures the rate of return on capital investment of the business. Capital employed

includes shareholder funds, long-term loans, and other accumulated funds of the

company.

Operating profit

ROCE =

Capital employed

A) Earnings per share:

It is calculated by the company at the end of the every financial year. In case of more profit and less number of shares EPS will increase.

Profit after tax

EPS =

Number of equity shares outstanding

B) Return on equity:

It is calculated on total equity funds (equity share capital, general reserve and other

accumulated profits)

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Profit after taxes

ROE =

Net worth

5. Dividend policy:

It is determined in the general body meeting of the company, for equity shares at the

end of the year. The dividend payout ratio is determined as per the dividend is paid.

Dividend policies are divided into two types.

a) Stable dividend policy.

b) Unstable dividend policy.

When company reached to optimum level it may follow stable dividend policy it

indicates stable growth rate, no fluctuation are estimated. Unstable dividend policy may

be used by developing firms. In such a case study growth market value of share is not

possible to identify.

6. Capital structure of the company:

Generally capital structure of the company consists of equity shares, preference shares,debentures and other long term funds. On the basis of long term financial sources cost

of capital is calculated.

7. Operating efficiency:

It is determined on the basis of capital expenditure and operating activities of a

company. Increased capital expenditure indicates increase of operating efficiency.

Expected profits may be increased in coming years. The operating efficiency of a

company directly affects the earnings of a company an expanding company that

maintains high operating efficiency with low breakeven point. Efficient use of fixed

assets with raw materials, labour, and management would lead to more income from

sales.

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8. Operating leverage:

The firms fixed cost is high in total cost, the firm is said to have a high degree of

operating leverage. High degree of operating leverage implies other factors being held

constant, a relatively small change in sales result in a large change in return on equity.

9. Management:

Good and capable management generates profits to the investors. The management of

the firm should efficiency plan, organizes, actuate and control the activities of the

company. The good management depends of the qualities of the manager. Knootz and

O Donnell suggest the following as special traits of an able manager.

10. Financial analysis:

The best source of financial information about a company is its own financial

statements. This is a primary source of information for evaluating the investment

prospects in the particular companys stock. The statement gives the historical and

current information about the companys information aids to analysis the present status

of the company.

11 . Ratio analysis:

Ratio is relationship between two figures expressed mathematically. Financial ratio provides numerical relationship between two relevant financial data. Financial ratios are

calculated from the balance sheet and profit and loss account. The relationship can be

either expressed as a percent or as a quotient.

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Four Steps in building a profitable portfolio

In today's financial marketplace, a well-maintained portfolio is vital to any

investor's success. As an individual investor, you need to know how to determine an asset

allocation that best conforms to your personal investment goals and strategies. In other

words, your portfolio should meet your future needs for capital and give you peace of

mind. Investors can construct portfolios aligned to their goals and investment strategies

by following a systematic approach. Here we go over some essential steps for taking such

an approach.

Step 1: Determining the Appropriate Asset Allocation for You

Ascertaining your individual financial situation and investment goals is the first

task in constructing a portfolio. Important items to consider are age, how much time you

have to grow your investments, as well as amount of capital to invest and future capital

needs. A single college graduate just beginning his or her career and a 55-year-old

married person expecting to help pay for a child's college education and plans to retire

soon will have very different investment strategies. A second factor to take into account

is your personality and risk tolerance. Are you the kind of person who is willing to risk

some money for the possibility of greater returns? Everyone would like to reap high

returns year after year, but if you are unable to sleep at night when your investments take

a short-term drop, chances are the high returns from those kinds of assets are not worth

the stress.

As you can see, clarifying your current situation and your future needs for capital,

as well as your risk tolerance, will determine how your investments should be allocated

among different asset classes. The possibility of greater returns comes at the expense ofgreater risk of losses (a principle known as the risk/return tradeoff) - you don't want to

eliminate risk so much as optimize it for your unique condition and style. For example,

the young person who won't have to depend on his or her investments for income can

afford to take greater risks in the quest for high returns. On the other hand, the person

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nearing retirement needs to focus on protecting his or her assets and drawing income

from these assets in a tax-efficient manner.

Conservative Vs. Aggressive Investor s

Generally, the more risk you can bear, the more aggressive your portfolio will be,

devoting a larger portion to equities and less to bonds and other fixed-income securities.

Conversely, the less risk that's appropriate, the more conservative your portfolio will be.

Here are two examples: one suitable for a conservative investor and another for the

moderately aggressive investor.

The main goal of a conservative portfolio is to protect its value. The allocation shown

above would yield current income from the bonds, and would also provide some long-

term capital growth potential from the investment in high-quality equities.

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A moderately aggressive portfolio satisfies an average risk tolerance, attracting those

willing to accept more risk in their portfolios in order to achieve a balance of capital

growth and income.

Step 2: Achieving the Portfolio Designed in Step 1

Once you've determined the right asset allocation, you simply need to divide your capital

between the appropriate asset classes. On a basic level, this is not difficult: equities are

equities, and bonds are bonds. But you can further break down the different asset classes

into subclasses, which also have different risks and potential returns. For example, an

investor might divide the equity portion between different sectors and market caps, and

between domestic and foreign stock. The bond portion might be allocated between those

that are short term and long term, government versus corporate debt and so forth. There

are several ways you can go about choosing the assets and securities to fulfill your asset

allocation strategy (remember to analyze the quality and potential of each investment you

buy - not all bonds and stocks are the same):

Stock Picki ng - Choose stocks that satisfy the level of risk you want to carry in the equity

portion of your portfolio - sector, market cap and stock type are factors to consider.

Analyze the companies using stock screeners to shortlist potential picks, than carry out

more in-depth analyses on each potential purchase to determine its opportunities and risks

going forward. This is the most work-intensive means of adding securities to your

portfolio, and requires you to regularly monitor price changes in your holdings and stay

current on company and industry news.

Bond Picking - When choosing bonds, there are several factors to consider including the

coupon, maturity, the bond type and rating, as well as the general interest rateenvironment.

Mutual Funds - Mutual funds are available for a wide range of asset classes and allow

you to hold stocks and bonds that are professionally researched and picked by fund

managers. Of course, fund managers charge a fee for their services, which will detract

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from your returns. Index funds present another choice; they tend to have lower fees

because they mirror an established index and are thus passively managed.

Exchange-Traded Funds (ETFs) - If you prefer not to invest with mutual funds, ETFs can

be a viable alternative. You can basically think of ETFs as mutual funds that trade likestocks. ETFs are similar to mutual funds in that they represent a large basket of stocks -

usually grouped by sector, capitalization, country and the like - except that they are not

actively managed, but instead track a chosen index or other basket of stocks. Because

they are passively managed, ETFs offer cost savings over mutual funds while providing

diversification. ETFs also cover a wide range of asset classes and can be a useful tool for

rounding out your portfolio.

Step 3: Reassessing Portfolio Weightings

Once you have an established portfolio, you need to analyze and rebalance it periodically

because market movements may cause your initial weightings to change. To assess your

portfolio's actual asset allocation, quantitatively categorize the investments and determine

their values' proportion to the whole. The other factors that are likely to change over time

are your current financial situation, future needs and risk tolerance. If these things

change, you may need to adjust your portfolio accordingly. If your risk tolerance has

dropped, you may need to reduce the amount of equities held. Or perhaps you're now

ready to take on greater risk and your asset allocation requires that a small proportion of

your assets be held in riskier small-cap stocks. Essentially, to rebalance, you need to

determine which of your positions are over weighted and underweighted. For example,

say you are holding 30% of your current assets in small-cap equities, while your asset

allocation suggests you should only have 15% of your assets in that class. Rebalancing

involves determining how much of this position you need to reduce and allocate to other

classes.

Step 4: Rebalancing Strategically

Once you have determined which securities you need to reduce and by how much, decide

which underweighted securities you will buy with the proceeds from selling the over

weighted securities. To choose your securities, use the approaches discussed in Step

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2.When selling assets to rebalance your portfolio, take a moment to consider the tax

implications of readjusting your portfolio. Perhaps your investment in growth stocks has

appreciated strongly over the past year, but if you were to sell all of your equity positions

to rebalance your portfolio, you may incur significant capital gains taxes. In this case, it

might be more beneficial to simply not contribute any new funds to that asset class in the

future while continuing to contribute to other asset classes. This will reduce your growth

stocks' weighting in your portfolio over time without incurring capital gains taxes.

At the same time, always consider the outlook of your securities. If you suspect that those

same over weighted growth stocks are ominously ready to fall, you may want to sell in

spite of the tax implications. Analyst opinions and research reports can be useful tools to

help gauge the outlook for your holdings. And tax-loss selling is a strategy you can apply

to reduce tax implications.

Remember the Importance of Diversification .

Throughout the entire portfolio construction process, it is vital that you remember to

maintain your diversification above all else. It is not enough simply to own securities

from each asset class; you must also diversify within each class. Ensure that your

holdings within a given asset class are spread across an array of subclasses and industry

sectors. As we mentioned, investors can achieve excellent diversification by using mutual

funds and ETFs. These investment vehicles allow individual investors to obtain the

economies of scale that large fund managers enjoy, which the average person would not

be able to produce with a small amount of money.

The Bottom Line

Overall, a well-diversified portfolio is your best bet for consistent long-term growth ofyour investments. It protects your assets from the risks of large declines and structural

changes in the economy over time. Monitor the diversification of your portfolio, making

adjustments when necessary, and you will greatly increase your chances of long-term

financial success.

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2.5 CONCEPTS AND DEFINITIONS

PORTFOLIO MANAGEMENT

Portfolio is none other than Basket of Stocks. Portfolio Management is the professional

management of various securities (shares, bonds and other securities) and assets (e.g.,

real estate) in order to meet specified investment goals for the benefit of the investors. It

may refer to:

Investment management, handled by a portfolio manager

IT Program management

IT portfolio management

Project management

Project portfolio management

Market capitalization (or market cap) is the total value of the issued shares of a publicly

traded company; it is equal to the share price times the number of shares outstanding. As

outstanding stock is bought and sold in public markets, capitalization could be used as a

proxy for the public opinion of a company's net worth and is a determining factor in some

forms of stock valuation.

Traditionally, companies were divided into large-cap, mid-cap, and small-cap. The terms

mega-cap and micro-cap have also since come into common use and nano-cap is

sometimes heard. Different numbers are used by different indexes;[8] there is no official

definition of, or full consensus agreement about, the exact cutoff values. The cutoffs may

be defined as percentiles rather than in nominal dollars. The definitions expressed in

nominal dollars need to be adjusted over the decades due to inflation, population change,

and overall market valuation (for example, $1 billion was a large market cap in 1950, but

it is not very large now), and they may be different for different countries. A rule of

thumb may look like:

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A term used by the investment community to refer to companies with a market

capitalization value of more than $10 billion. Large cap is an abbreviation of the term

"large market capitalization". Market capitalization is calculated by multiplying the

number of a company's shares outstanding by its stock price per share.

Financial Markets

Introduction

There are a wide range of financial securities available in the markets these days. In this

chapter, we take a look at different financial markets and try to explain the various

instruments where investors can potentially park their funds. Financial markets can

mainly be classified into money markets and capital markets. Instruments in the money

markets include mainly short-term, marketable, liquid, low-risk debt securities. Capital

markets, in contrast, include longer-term and riskier securities, which include bonds and

equities. There is also a wide range of derivatives instruments that are traded in the

capital markets. Both bond market and money market instruments are fixed-income

securities but bond market instruments are generally of longer maturity period as

compared to money market instruments. Money market instruments are of very short

maturity period. The equities market can be further classified into the primary and the

secondary market. Derivative market instruments are mainly futures, forwards and

options on the underlying instruments, usually equities and bonds.

Primary and Secondary Markets

A primary market is that segment of the capital market, which deals with the raising of

capital from investors via issuance of new securities. New stocks/bonds are sold by the

issuer to the public in the primary market. When a particular security is offered to the

public for the first time, it is called an Initial Public Offering (IPO). When an issuer wantsto issue more securities of a category that is already in existence in the market it is

referred to as Follow-up Offerings.

Example: Reliance Power Ltd.s offer in 2008 was an IPO because it was for the first

time that Relian ce Power Ltd. offered securities to the public. Whereas, BEMLs public

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offer in 2007 was a Follow-up Offering as BEML shares were already issued to the

public before 2007 and were available in the secondary market.

It is generally easier to price a security during a Follow-up Offering since the market

price of the security is actually available before the company comes up with the offer,whereas in the case of an IPO it is very difficult to price the offer since there is no

prevailing market for the security. It is in the interest of the company to estimate the

correct price of the offer, since there is a risk of failure of the issue in case of non-

subscription if the offer is overpriced. If the issue is underpriced, the company stands to

lose notionally since the securities will be sold at a price lower than its intrinsic value,

resulting in lower realizations. The secondary market (also known as aftermarket) is the

financial market where securities, which have been issued before are traded. The

secondary market helps in bringing potential buyers and sellers for a particular security

together and helps in facilitating the transfer of the security between the parties. Unlike in

the primary market where the funds move from the hands of the investors to the issuer

(company/ Government, etc.), in case of the secondary market, funds and the securities

are transferred from the hands of one investor to the hands of another. Thus the primary

market facilitates capital formation in the economy and secondary market provides

liquidity to the securities. There is another market place, which is widely referred to as

the third market in the investment world. It is called the over-the-counter market or OTC

market. The OTC market refers to all transactions in securities that are not undertaken on

an Exchange. Securities traded on an OTC market may or may not be traded on a

recognized stock exchange. Trading in the OTC market is generally open to all registered

broker-dealers. There may be regulatory restrictions on trading some products in the OTC

markets. For example, in India equity derivatives is one of the products which is

regulatory not allowed to be traded in the OTC markets. In addition to these three, direct

transactions between institutional investors, undertaken primarily with transaction costsin mind, are referred to as the fourth market.

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Trading in Secondary Markets

Trading in secondary market happens through placing of orders by the investors and their

matching with a counter order in the trading system. Orders refer to instructions provided

by a customer to a brokerage firm, for buying or selling a security with specificconditions. These conditions may be related to the price of the security (limit order or

market order or stop loss orders) or related to time (a day order or immediate or cancel

order). Advances in technology have led to most secondary markets of the world

becoming electronic exchanges. Disaggregated traders across regions simply log in the

exchange, and use their trading terminals to key in orders for transaction in securities. We

outline some of the most popular orders below:

Types of Orders

Limit Price/Order: In these orders, the price for the order has to be specified while

entering the order into the system. The order gets executed only at the quoted price or at a

better price (a price lower than the limit price in case of a purchase order and a price

higher than the limit price in case of a sale order). Market Price/Order: Here the

constraint is the time of execution and not the price. It gets executed at the best price

obtainable at the time of entering the order. The system immediately executes the order,

if there is a pending order of the opposite type against which the order can match. The

matching is done automatically at the best available price (which is called as the market

price). If it is a sale order, the order is matched against the best bid (buy) price and if it is

a purchase order, the order is matched against the best ask (sell) price. The best bid price

is the order with the highest buy price and the best ask price is the order with the lowest

sell price. Stop Loss (SL) Price/Order: Stop-loss orders which are entered into the trading

system, get activated only when the market price of the relevant security reaches a

threshold price. When the market reaches the threshold or pre-determined price, the stoploss order is triggered and enters into the system as a market/limit order and is executed

at the market price / limit order price or better price. Until the threshold price is reached

in the market the stop loss order does not enter the market and continues to remain in the

order book. A sell order in the stop loss book gets triggered when the last traded price in

the normal market reaches or falls below the trigger price of the order. A buy order in the

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stop loss book gets triggered when the last traded price in the normal market reaches or

exceeds the trigger price of the order. The trigger price should be less than the limit price

in case of a purchase order and vice versa. Time Related Conditions Day Order (Day): A

Day order is valid for the day on which it is entered. The order, if not matched, gets

cancelled automatically at the end of the trading day. At the National Stock Exchange

(NSE) all orders are Day orders. That is the orders are matched during the day and all

unmatched orders are flushed out of the system at the end of the trading day. Immediate

or Cancel order (IOC): An IOC order allows the investor to buy or sell a security as soon

as the order is released into the market, failing which the order is removed from the

system. Partial match is possible for the order and the unmatched portion of the order is

cancelled immediately.

Matching of orders

When the orders are received, they are time-stamped and then immediately processed for

potential match. The best buy order is then matched with the best sell order. For this

purpose, the best buy order is the one with highest price offered, also called the highest

bid, and the best sell order is the one with lowest price also called the lowest ask (i.e.,

orders are looked at from the point of view of the opposite party). If a match is found

then the order is executed and a trade happens. An order can also be executed against

multiple pending orders, which will result in more than one trade per order. If an order

cannot be matched with pending orders, the order is stored in the pending orders book till

a match is found or till the end of the day whichever is earlier. The matching of orders at

NSE is done on a price-time priority i.e., in the following sequence:

Be st Price

Within Price, by time priority

Orders lying unmatched in the trading system are passive orders and orders that come in

to match the existing orders are called active orders. Orders are always matched at the

passive order price. Given their nature, market orders are instantly executed, as compared

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to limit orders, which remain in the trading system until their market prices are reached.

The set of such orders across stocks at any point in time in the exchange, is called the

Limit Order Book (LOB) of the exchange. The top five bids/asks (limit orders all) for any

security are usually visible to market participants and constitute the Market By Price

(MBP) of the security.

The Money Market

The money market is a subset of the fixed-income market. In the money market,

participants borrow or lend for short period of time, usually up to a period of one year.

These instruments are generally traded by the Government, financial institutions and

large corporate houses. These securities are of very large denominations, very liquid,

very safe but offer relatively low interest rates. The cost of trading in the money market(bid-ask spread) is relatively small due to the high liquidity and large size of the market.

Since money market instruments are of high denominations they are generally beyond the

reach of individual investors. However, individual investors can invest in the money

markets through money-market mutual funds. We take a quick look at the various

products available for trading in the money markets.

T-Bills

T-Bills or treasury bills are largely risk-free (guaranteed by the Government and hence

carry only sovereign risk - risk that the government of a country or an agency backed by

the government, will refuse to comply with the terms of a loan agreement), short-term,

very liquid instruments that are issued by the central bank of a country. The maturity

period for T-bills ranges from 3-12 months. T-bills are circulated both in primary as well

as in secondary markets. T-bills are usually issued at a discount to the face value and the

investor gets the face value upon maturity. The issue price (and thus rate of interest) of T-

bills is generally decided at an auction, which individuals can also access. Once issued,

T-bills are also traded in the secondary markets. In India, T-bills are issued by the

Reserve Bank of India for maturities of 91-days, 182 days and 364 days. They are issued

weekly (91-days maturity) and fortnightly (182-days and 364- days maturity )

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Commercial Paper

Commercial papers (CP) are unsecured money market instruments issued in the form of a

promissory note by large corporate houses in order to diversify their sources of short-

term borrowings and to provide additional investment avenues to investors. Issuingcompanies are required to obtain investment-grade credit ratings from approved rating

agencies and in some cases, these papers are also backed by a bank line of credit. CPs are

also issued at a discount to their face value. In India, CPs can be issued by companies,

primary dealers (PDs), satellite dealers (SD) and other large financial institutions, for

maturities ranging from 15 days period to 1-year period from the date of issue. CP

denominations can be Rs. 500,000 or multiples thereof. Further, CPs can be issued either

in the form of a promissory note or in de materialized form through any of the approved

depositories.

Certificates of Deposit

A certificate of deposit (CD), is a term deposit with a bank with a specified interest rate.

The duration is also pre-specified and the deposit cannot be withdrawn on demand.

Unlike other bank term deposits, CDs are freely negotiable and may be issued in

dematerialized form or as a Usance Promissory Note. CDs are rated (sometimes

mandatory) by approved credit rating agencies and normally carry a higher return than

the normal term deposits in banks (primarily due to a relatively large principal amount

and the low cost of raising funds for banks). Normal term deposits are of smaller ticket-

sizes and time period, have the flexibility of premature withdrawal and carry a lower

interest rate than CDs. In many countries, the central bank provides insurance (e.g.

Federal Deposit Insurance Corporation (FDIC) in the U.S., and the Deposit Insurance and

Credit Guarantee Corporation (DICGC) in India) to bank depositors up to a certain

amount (Rs. 100000 in India). CDs are also treated as bank deposit for this purpose. InIndia, scheduled banks can issue CDs with maturity ranging from 7 days 1 year and

financial institutions can issue CDs with maturity ranging from 1 year 3 years. CD are

issued for denominations of Rs. 1,00,000 and in multiples thereof

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Repos and Reverse Repos

Repos (or Repurchase agreements) are a very popular mode of short-term (usually

overnight) borrowing and lending, used mainly by investors dealing in Government

securities. The arrangement involves selling of a tranche of Government securities by theseller (a borrower of funds) to the buyer (the lender of funds), backed by an agreement

that the borrower will repurchase the same at a future date (usually the next day) at an

agreed price. The difference between the sale price and the repurchase price represents

the yield to the buyer (lender of funds) for the period. Repos allow a borrower to use a

financial security as collateral for a cash loan at a fixed rate of interest. Since Repo

arrangements have T-bills as collaterals and are for a short maturity period, they virtually

eliminate the credit risk. Reverse repo is the mirror image of a repo, i.e., a repo for the

borrower is a reverse repo for the lender. Here the buyer (the lender of funds) buys

Government securities from the seller (a borrower of funds) agreeing to sell them at a

specified higher price at a future date.

The Bond Market

Bond markets consist of fixed-income securities of longer duration than instruments in

the money market. The bond market instruments mainly include treasury notes and

treasury bonds, corporate bonds, Government bonds etc.

State and Municipal Government bonds

Apart from the central Government, various State Governments and sometimes municipal

bodies are also empowered to borrow by issuing bonds. They usually are also backed by

guarantees from the respective Government. These bonds may also be issued to finance

specific projects (like road, bridge, airports etc.) and in such cases, the debts are either

repaid from future revenues generated from such projects or by the Government from its

own funds. Similar to T-notes and T-bonds, these bonds are also granted tax-exempt

status. In India, the Government securities (includes treasury bills, Central Government

securities and State Government securities) are issued by the Reserve Bank of India on

behalf of the Government of India.

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Corporate Bonds

Bonds are also issued by large corporate houses for borrowing money from the public for

a certain period. The structure of corporate bonds is similar to T-Notes in terms of

coupon payment, maturity amount (face value), issue price (discount to face value) etc.However, since the default risk is higher for corporate bonds, they are usually issued at a

higher discount than equivalent Government bonds. These bonds are not exempt from

taxes. Corporate bonds are classified as secured bonds (if backed by specific collateral),

unsecured bonds (or debentures which do not have any specific collateral but have a

preference over the equity holders in the event of liquidation) or subordinated debentures

(which have a lower priority than bonds in claim over a firms assets).

International Bonds

These bonds are issued overseas, in the currency of a foreign country which represents a

large potential market of investors for the bonds. Bonds issued in a currency other than

that of the country which issues them are usually called Eurobonds. However, now they

are called by various names depending on the currency in which they are issued.

Eurodollar bonds are US dollar-denominated bonds issued outside the United States.

Euro-yen bonds are yen denominated bonds issued outside Japan. Some international

bonds are issued in foreign countries in currency of the country of the investors. The most

popular of such bonds are Yankee bond and Samurai Bonds. Yankee bonds are US dollar

denominated bonds issued in U.S. by a non-U.S. issuer and Samurai bonds are yen-

denominated bonds issued in Japan by non-Japanese issuers.

Convertible Bonds

Convertible bonds offer a right (but not the obligation) to the bondholder to get the bond

converted into predetermined number of equity stock of the issuing company, at certain, pre specified times during its life. Thus, the holder of the bond gets an additional value,

in terms of an option to convert the bond into stock (equity shares) and thereby

participate in the growth of the companys equity value. The investor receives the

potential upside of conversion into equity while protecting downside with cash flow from

the coupon payments. The issuer company is also benefited since such bonds generally

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offer reduced interest rate. However, the value of the equity shares in the market

generally falls upon issue of such bonds in anticipation of the stock dilution that would

take place when the option (to convert the bonds into equity) is exercised by the

bondholders.

Commodity

The word commodity came into use in English in the 15th century, from the French

commodit, to a benefit or profit. Going further back, the French word derived from the

Latin commoditatem (nominative commoditas) meaning "fitness, adaptation". The Latin

root commod- (from which English gets other words including commodious and

accommodate) meant variously "appropriate", "proper measure, time, or condition" and

"advantage, benefit".

In economics, a commodity is a marketable item produced to satisfy wants or needs.

Economic commodities comprise goods and services.

The more specific meaning of the term commodity is applied to goods only. It is used to

describe a class of goods for which there is demand, but which is supplied without

qualitative differentiation across a market. A commodity has full or partial fungibility;

that is, the market treats its instances as equivalent or nearly so with no regard to who

produced them. "From the taste of wheat it is not possible to tell who produced it, a

Russian serf, a French peasant or an English capitalist." Petroleum and copper are other

examples of such commodities, their supply and demand being a part of one universal

market. Items such as stereo systems, on the other hand, have many aspects of product

differentiation, such as the brand, the user interface and the perceived quality. The

demand for one type of stereo may be much larger than demand for another.

In contrast, one of the characteristics of a commodity good is that its price is determined

as a function of its market as a whole. Well-established physical commodities have

actively traded spot and derivative markets. Generally, these are basic resources and

agricultural products such as iron ore, crude oil, coal, salt, sugar, tea, coffee beans,

soybeans, aluminum, copper, rice, wheat, gold, silver, palladium, and platinum. Soft

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commodities are goods that are grown, while hard commodities are the ones that are

extracted through mining.

This is a list of giant commodities trading companies who operate worldwide.

1. Vitol

2. Glencore International AG

3. Trafigura

4. Cargill

5. Archer Daniels Midland

6. Gunvor (company)

7. Mercuria Energy Group

8. Noble Group

9. Louis Dreyfus Group

10. Bunge Limited

11. Wilmar International

12. Olam International

Commodity trade

In the original and simplified sense, commodities were things of value, of uniform

quality, that were produced in large quantities by many different producers; the items

from each different producer were considered equivalent. On a commodity exchange, it is

the underlying standard stated in the contract that defines the commodity, not any quality

inherent in a specific producer's product.

Commodities exchanges include:

Chicago Board of Trade (CBOT)

Chicago Mercantile Exchange (CME)

Dalian Commodity Exchange (DCE)

Global Board of Trade (GBOT)

Euronext.liffe (LIFFE)